Colina Production Company uses a standard costing system. The following information pertains to the current year. Direct labor hours is the driver used to assign overhead costs to products. $\begin{array} { l }
\text { Actual production}&5,500 units\
\text {Actual factory overhead costs $ (\$ 16,500 $ is fixed) }&\$ 40,125 \
\text {Actual direct labor costs ( 11,250 hours) }&\$ 131,625\
\text {Standard direct labor for 5,500 units: }&\
\text { Standard hours allowed}&11,000 hours\
\text {Labor rate }&\$ 12.00\
\end{array}$

The factory overhead rate is based on an activity level of 10,000 direct labor hours.
Standard cost data for 5,000 units is as follows:

$\begin{array} { l }
\text { Variable factory overhead}&\$22,500\
\text {Fixed factory overhead }&13,500\
\text {Total factory overhead }&\$36,000\
\end{array}$
What is the variable overhead efficiency variance for Colina Production Company?
A)$562.50 (F)
B)$3,000.00 (U)
C)$1,687.50 (F)
D)$562.50 (U)

Question

Colina Production Company uses a standard costing system. The following information pertains to the current year. Direct labor hours is the driver used to assign overhead costs to products. $\begin{array} { l  }
 \text { Actual production}&5,500 units\
 \text {Actual factory overhead costs $ (\$ 16,500 $ is fixed) }&\$ 40,125 \
 \text {Actual direct labor costs ( 11,250 hours) }&\$ 131,625\
 \text {Standard direct labor for 5,500 units: }&\
 \text { Standard hours allowed}&11,000 hours\
 \text {Labor rate }&\$ 12.00\
\end{array}$

The factory overhead rate is based on an activity level of 10,000 direct labor hours.
 Standard cost data for 5,000 units is as follows:

$\begin{array} { l  }
 \text { Variable factory overhead}&\$22,500\
 \text {Fixed factory overhead }&13,500\
 \text {Total factory overhead }&\$36,000\
\end{array}$
 What is the variable overhead efficiency variance for Colina Production Company?
A)$562.50 (F)
B)$3,000.00 (U)
C)$1,687.50 (F)
D)$562.50 (U)

Quizplus · Accepted Answer

The variable overhead efficiency variance is calculated as the difference between the standard variable overhead cost for the actual production and the actual variable overhead cost. First, calculate the standard variable overhead rate per direct labor hour: $\$22,500 / 10,000 hours = \$2.25 per hour$. Then, calculate the variance: $(11,000 standard hours - 11,250 actual hours) \times \$2.25 = -250 hours \times \$2.25 = -\$562.50$, which is unfavorable (U) because actual hours exceeded standard hours.

Colina Production Company Uses a Standard Costing System The Factory Overhead Rate Is Based on an Activity Level